Online stores saw their top-line results explode during the pandemic as shopping volumes via digital channels grew on the back of lockdown measures. However, for store owners, higher sales do not necessarily translate into higher profitability as many factors may weigh on a company’s bottom-line results when it attempts to scale up.
If you are currently struggling to increase your store’s profits, even in the midst of a surge in sales, this article is for you. Check out a few tips on how to improve the bottom-line performance of your online store.
#1 – Invest in business intelligence software
The first step to identify what needs to be adjusted in your business so you can increase its profitability is to understand the current situation.
For that purpose, purchasing top-notch business intelligence software should be considered an investment. Not an expense.
Since we are focusing on ramping up the store’s bottom line, a software that delivers insightful data about its profitability is perhaps the most relevant for this particular goal. One alternative is the Beprofit app, which provides the user with information about the store’s performance in real time. This app can be easily integrated with your Shopify website.
Once you know how things look like in the present, it will be easier to make adjustments that aim to increase profit margins in the future.
#2 – The importance of your product mix
A product mix is understood as how much of the store’s total sales are coming from each product, line, or category. Each of these items has different gross profit margins and, therefore, your product mix will have a strong influence on your top-line profitability.
As a rule of thumb, stores should focus most of their efforts on moving higher volumes of their high-margin products as those will ramp up their bottom-line profitability more easily.
#3 – Keep an eye on your overhead
Your store’s overhead includes the operating expenditures you need to make every month to keep the business up and running. This includes rent, subscription costs, payroll, and other similar expenses.
Since these items will typically eat a large chunk of your gross profits, your overhead should only grow if those expenditures will contribute to increasing your top or bottom-line margins in the future.
Moreover, you could look for ways to reduce your current expenses by introducing automation to your processes or by increasing the flexibility of your cost structure. One example of this involves hiring freelancers instead of full-time workers to deal with potentially short-lived spikes in demand.
#4 – Avoid expensive debt
If your gross margins are good, you might feel tempted to take on some debt to secure a lower price for your inventory by increasing your order size. However, keep in mind that sudden spikes in the demand for certain products or categories may not last as long as you expect.
Therefore, store owners should avoid taking on debt at a high interest rate as those expenditures will weigh on your bottom-line results if your inventory fails to rotate as fast as you expect.
In any case, if you still think this is a good idea, you can take on flexible financing instruments rather than fixed-period loans as you will be able to repay them at any given point if the resources obtained from the loan are no longer useful or necessary to the business.
#5 – Work on your customer retention strategy
Acquiring a new customer for an online store can be quite expensive. Data from Shopify indicates that the average cost to take on a new customer for a small e-commerce business with less than four employees is around $59.
If you think about it, it doesn’t make much sense to spend that much money unless you have a proper customer retention strategy. This is true since the only way you might be able to afford that kind of customer acquisition cost is to keep selling to that same person or business until it becomes a profitable customer.
Therefore, retaining your existing customers can be more important than acquiring new ones if your goal is to increase your store’s profitability in the long run.
#6 – Use sophisticated sales techniques
Once you have acquired a customer, one of the best strategies for increasing your average sales per customer is to deploy cross-selling and up-selling strategies. Cross-selling involves recommending products that complement the client’s primary purchase while upselling means offering a “premium” version of the product.
These strategies need to be conceived beforehand and you can program your online store to make recommendations that follow this approach.
For example, if you sell fishing gear, you could offer a discount for buying multiple related items as that will increase the size of your average order. As a result, you could eventually scale up to a point that you’ll benefit from the economies of scale resulting from higher sales volumes and that will have a positive impact on your bottom-line results.
Bottom line
Even though many other strategies and actions could be implemented to ramp up your store’s profitability, these are some of the most practical ones you can start considering.
Meanwhile, for this particular goal, the accuracy of the information you have on your store’s current performance will be crucial to determine what needs to be adjusted and to what extent.
